The Greek Economy after the Crisis: Challenges and Responses - Case Study Example

Introduction Greece is a member of the European Union. The country has been under pressure due to its debt crisis that prompted the EU to put forth stringent measures to help it recover from the crisis (Petrakis, 2011; p. 97). As a result, most of sectors the country’s economy are under-developed. One of the major sectors suffering the effects of the economic decline is the integration of IT in the education sector. For example, the broadband market is not well explored by the IT related firms and those in existence offer inferior broadband speeds which the newly formed company intends to capitalize on (Coccossis & Psycharēs, 2008; p.31). The company aims to seek competitive advantage in IT by supplying broadband products with high speed and better quality in Greece. So, this paper will discuss the company’s choice of entry mode and the theoretical roots for that choice beside a debate about Porter diamond linkage. Environmental Analysis (PESTEL) In terms of political factors, Greece was highly ranked in 2012 in terms of freedom of expression and governance in the 67.30 percentile (European Schoolnet & University of Liege, 2013; p. 10). The main hurdle against social and economic progress in the county is to put into force stringent measures to minimize its debt crisis and exercise economic discipline despite absence of public support. The economic environment of the country is in bad shape given the fact that asceticism measures have taken a critical toll on the business community, making the country’s GDP contract by about 7.1% and 6.4% in 2011 and 2012 respectively. It was also predicted that this might deepen by a further 4.2% in 2013 (European Schoolnet & University of Liege, 2013; p. 11). According to S&P grading, Greece’s sovereign debt was rated B- as the EU committed to save the nation through structural reforms. The diagrams below show the changes in various major variables in Greece Economy. Countrys GDP change Source: (United Nations Industrial Development Organization, 2013) Unemployment rate in Greece by Year Source: (United Nations Industrial Development Organization, 2013) From the social view, 34.6% of the population is at risk of social exclusion or poverty as noted by Eurostat data where 19.5% of the population is materially deprived. 23.1% of the Greek population is vulnerable to the risk of poverty in spite of the social transfers undertaken in 2012. Greece Population change since 2000 to 2012 Source: (United Nations Industrial Development Organization, 2013) In terms of technological advancement, Greece obtained about 82 patents, the lowest figure to be ever achieved by an EU member state which is a critical challenge in terms of innovation. By 2012, the rate of mobile phone distribution had gone up to 117.88/100 people. About 13.33 million of the population have subscribed to mobile services with 56% being internet users in 2012. The legal environment, the tax rate of the country has been slightly higher than the EU average of 44.6% compared to 42.6% of EU and 23% from Cyprus (Brouthers, 2002; p. 217). The change in regulations has seen Greece improve in its ranking in terms of ease of doing business, leaping 111 positions. Finally, the environmental landscape of Greece performs well according to environmental Performance Index of 2012. Greece ranks 33/132 countries as noted by the contraction in CO2 emissions because the emissions fell to 91.3 million metric tonnes in 2011 from 109.47m tonnes noted in 2007 (Marketline, 2013; p. 2). Volume of CO2 emission in Greece The broadband Market in Greece The ICT infrastructure of Greece is not well developed given that the country’s desktop computers linked to internet falls below average at all grades in the EU. Most of the computers in Greece are desktop computers with a much lower number of laptop computers at all grade levels. The internet connectivity to laptop computers is also lower than that of other EU members (European Schoolnet & University of Liege, 2013; p. 12). The broadband products are very scarce in schools with an almost average EU broadband connection at all grades (European Schoolnet & University of Liege, 2013; p. 12). Besides, the speed of broadband is very low which does not exceed 10mbps. The students at all grades are in need of broadband speed of 100mbps which is notably at grade 8. The following table shows the true picture of broadband speed in various grades in comparison with EU average. Broadband speed in Greece against EU Average used at Grade 4 level Speed Greece EU Average No broadband 5% 8% 100mbps 4% Source: (European Schoolnet & University of Liege, 2013) Broadband speed in Greece against EU Average used at Grade 11 Speed Greece EU Average No broadband 5% 7% 100mbps 11% Source: (European Schoolnet & University of Liege, 2013) The schools located in the rural areas have a slower internet network compared to those in urban areas given the positive correlation between the broadband speed and population magnitude in school’s location. The schools have a lower connectivity characteristic since Greece has few schools with websites compared to the EU average except for those in grades 11. The rate of virtual learning is very low. However, the students in grade 11 vocational are all connected. This scenario is shown in the table below. Internet connectivity level at Grade 4 Connectedness Greece EU School website 54% 32% Virtual learning environment 8% 15% No connectedness 12% 63% Source: (European Schoolnet & University of Liege, 2013) Internet connectivity level at Grade 11 Connectedness Greece EU School website 97% 93% Virtual learning environment 19% 63% No connectedness 0% 6% Source: (European Schoolnet & University of Liege, 2013) The diagrams below show the trends in the competitiveness and users of internet in Greece as well as the population that is continuously taking on cellular subscriptions. Internet Users Source: (United Nations Industrial Development Organization, 2013) Internet Hosts by year Source: (United Nations Industrial Development Organization, 2013) Mobile cellular subscribers in Greece Year Value 1993 48000 1994 153000 1995 273000 1996 532000 1997 937700 1998 2047000 1999 3904000 2000 5932403 2001 7963742 2002 9314260 2003 8936202 2004 9324335 2005 10260396 2006 10979826 2007 12294912 2008 13799340 2009 13295093 2010 12292716 Source: (United Nations Industrial Development Organization, 2013) The tables above show the market gap that needs to be filled to meet the EU mobile connectivity average. There is good potential for the broadband product in terms of marketability. Furthermore, the frequency of ICT utilization by the instructors and teachers in class has been noted to be higher across all grades. In more than a quarter of the lessons the teachers use ICT, which is way above the EU average (IFIP TC9, 2008; p. 24). The students have also been noted to use ICT facilities given that most of grade 8 and grade 11 own at least a laptop, mobile phone or desk top computers. With the increased confidence in the ownership and use of ICT facilities, the market segment is in high demand for a high speed broadband to enhance connectivity and usability. Having noted the market gap in Greek ICT sector, the business intends to apply a specific entry mode into the foreign market to capitalize on the opportunity. Entry Mode into the Foreign Market The main justification for entry into foreign market ICT sector is to capitalize on the opportunities present in Greece and attract the major sector, which is education and use of ICT. The company deemed it necessary to have its (operations licensed) to protect its innovation (Koch, 2001; p. 354). This form of entry is attractive since it will enable the company to save on risks related with opening a new foreign market and development expenses. Barriers to investment will be avoided at the same time the broadband company will take advantage of the market opportunities discussed earlier. To minimize on the risk of lacking tight control, limited mobility across the country, the firm intends to make use of cross-licensing (Kogut and Singh, 1988; p. 427). At the same time it is also the interests of the start-up firm’s strategy to protect its innovation in the foreign market. Greece is more attractive given that the broadband product is not far and widely accessible and the ones available do not actually fulfill the needs of consumers in the education sector. The table below analyzes Greece broadband market rating if the company decides to capitalize the existing market gap. Greece broadband market rating Industry attractiveness factor Weight Attractiveness rating Weighted industry rating Market size and estimated growth 0.20 9 1.8 Level of competition 0.15 5 0.75 Resource fits and strategic fits with other industries in portfolio 0.10 9 0.9 Resource requirements 0.10 6 0.6 Rising industry opportunities and threats 0.10 8 0.8 Seasonal and cyclical impact 0.10 5 0.5 Social, political, legal and environmental aspects 0.15 7 1.05 Industry uncertainty and business risks 0.10 3 0.3 Sum of weights 1.00 Industry Attractiveness rating 6.7 Rating scale 1-very unattractive 5- Average 10-Very Attractive Other reasons that make this mode of entry (licensing) into Greece ICT and education sector viable include; the desire by the company to minimize on the risk related to control on the main competencies within the ICT industry (Hill & Jones, 2012; p. 165). In addition, this strategy will give the company a competent control in other different states for effective world strategic coordination and management. In most markets, communication and network business requires one to protect their innovations for competitive advantage. In addition, licensing as a mode of entry reduces enables the company initiate training programs with much ease hence increasing consumer loyalty and reducing the prices for its services and products (Koch, 2001; p. 360). The company will be required to make negotiations with the host government to determine how the licensing of the product will be conducted and agreements regarding repatriation of profits. In spite of the low level of involvement by the local or host government as stipulated by the international licensor, the business is significantly local as its license is owned by a domestic firm. Consequently, the barriers to importations like tariffs and regulation will not apply in this case (Bineto & Petersen, 2009; p. 143). Theoretical Roots of Licensing Generally, the literature of on the international expansion process of international market entry can be divided into two schools of thought, the stages theory, and the contingency theory (Melin, 1992). The stages theory views the international expansion of firms as a set process of chronological progress through stages of resource commitment ( Anderson 1993 & Peters 1994). On the other hand, the contingency theory focuses on strategies or choices for the various international market entry modes (Melin 1992, Kwon & Konopa 1992). Moreover, Koch (2001) explains that the company size / resources can affect the company’s choice of market entry mode. Because due to limited resources, smaller companies usually have fewer market servicing options. In licensing, there are two parties. One is licensor and the other is the licensee. The licensor gives permission to the licensee of the company to use their resources like technology trade mark, managerial skills etc. In return, the licensee has to pay a royalty fee or certain sum of to the licensor (Hill, 1990). Porter Diamond factors The success of broadband marketability in Greece will also depend on Porter’s Diamond factors. In the creation of a competitive advantage factor endowment, demand situation and associated and tertiary industries as well as the strategy of the firm and competition will shape the success of the company’s products. The following is a diagram illustrating of Porter’s Diamond factors. Porter’s Diamond Source: (Hill, 2012). According to factor conditions Greece is not well gifted with quality technological products hence the introduction of high speed broadband products will help in the establishment of a competitive advantage.(Plomp, 2009; p. 13) The demand climate of high speed broadband products in Greece especially in the education will help in influencing the development potentials in Greece. Greece seems to be raining their passive voices in demand for high speed broadband to improve the ICT services in the schools hence calling on the companies to give out quality and innovative products. As noted before the country has had only 82 innovations till 2012 which calls for more actions on the part of foreign investors and innovators (Pilat & OECD, 2003; p. 47). Related and supporting industries such as mobile network providers, computer suppliers among other technological products will enhance the execution of this process as well as strategies. In particular the company will depend more on the related and supporting industries for licensing and provision of media through which to run broadband products (Hill, 2012; p. 7). Investment into such industries has the potential of spilling over and leading to the triumph of broadband market. The company will have to partner with Tellas a subsidiary of WIND Hellas one of the internet service providers to enhance cross-licensing or the Company might decide to work with Cosmote Company, a mobile network firm in Greece for distribution of its products (Coccossis & Psycharēs, 2008; p. 37). Finally, the firm’s strategy, competiveness and structure will also determine how the company will be organized, managed and the product distributed. The nature of competitiveness will also help in the establishment of the company in Greece. However, this will fundamentally depend on the ability of the country to influence the national competitive edge (Plomp, 2009; p. 228). The firm’s strategy and structure is to an operating licensing as well as patent their innovation in Greece by cross-licensing with a local based firm. There is an efficient link between the local competition and the establishment of a competitive edge in the communication and network industry by an international firm. Moreover, Porter recognized two extra variables influencing the diamond in various ways. These are chance and government (Coccossis & Psycharēs, 2008; p. 36). Chance occurrences are events that come outside the control of the company. They are vital because they bring about discontinuities where the company will be able to achieve some competitive places while others may lose (Rugman,1991; p. 63). The company will be able to establish situations for improved innovation and competitiveness. The government can affect the four competitiveness determinants such as conditions of demand in the domestic market and the supply of major factors of production. The intervention of the government is likely to come at the regional and local level such as issuance of license and determination who receives the tender to supply the broadband products. Moreover, the administration might come in when certain regulations have to be met such as licensing of the company and providing permit for the operations as well as agreement on how taxation will be conducted. This will influence the broadband company and the manner in which it will execute its activities as well as finance its operations. Conclusion Even though Greece as a country is experiencing tight economic conditions, the education sector has made efforts to embrace ICT in learning. As discussed in this paper, the students in various grades and teachers are continuously demanding more ICT facilities apart from the desktops and laptops. Therefore the target product broadband intended to be distributed in the country through licensing intends to fill the gap in the market and provide high speed broadband to enhance ICT integration in the education of Greece. The company rely on Porter’s diamond factors to identify the gaps and capitalize on the opportunities by creating an effective competitive advantage. Bibliography Asmussen, C., Bineto, G., and Petersen, B. (2009). Organizing foreign market activities: From entry mode choice to configuration decisions, International Business Review, 18 (2): 145-155 Brouthers, K.D. (2002). Institutional, cultural, and transaction cost influences on entry mode choice and performance, Journal of International Business Studies, 33 (2): 203-221. Coccossis, H., & Psycharēs, G. (2008). Regional analysis and policy: The Greek experience. Heidelberg: Physica. European Schoolnet and University of Liege (2013). Country profile: Greece; Survey of Schools: ICT in Education. 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